Eurozone Chaos

Richard Russell snippet
Dow Theory Letters
Posted Dec 13, 2011

December 12, 2011 - "If you're going to panic, do it fast and beat the crowd." Jesse Livermore

At last, Saturday I left the rehab center and returned home. It was quite a shock to return to the new homestead (I had only been living there 18 months). Being at rehab was quite an experience. I thought I had troubles. But after seeing the people at the rehab facilities, I learned better. Broken arms, broken legs, cracked skulls, people frozen with fear screaming jumbled words in the night, ancient women falling asleep over their dinners.

But the worst cases were damages connected with autos. Some people had been caught in crashes, others had been hit by cars. All suffered the awful results of shock. It was sad and even shocking to see these wrecked and broken bodies on muscle-building machines, as they tried to build up strength and repair their broken bodies. It seemed the average age of participants was about 70. At 87 I felt like a veteran.

I did have a lot of time to think while recuperating. In the last three and a half years I've had my share of troubles, including a stroke, an appendectomy and most recently the broken hip. They say that "what ever doesn't kill you makes you stronger." Well, I'm still alive -- so call me Hercules.

Here are a few of the things I've realized.

For 50 years all I had to write about was what was happening in the "dear old USA." What was happening overseas was inconsequential or somebody else's worry. Today I receive a dozen newspapers, and the headlines in each one is different. Most of the headlines are about Europe, Asia, China or Greece. This for me, amounts to too much information. I can't absorb it all, and I doubt if anybody else can. Britain turns down the Euro monetary union, or China's inflation rate is discussed, or the rate of exports in Germany is highlighted. Worse, I learn that most US mortgage owners are "under-water." Meaning that their mortgage is greater than their equity in their home.

The latest news is that under the new agreement all members of the Euro-zone must live under strict terms laid down by Europe's greatest exporter -- Germany. Will Greece, Portugal, Spain and others abide by the German rules? Or will they continue to want to have fun? Complain the Germans, "Why should we live within our means and work ourselves to the bone while the Greeks work short hours and bask in the sun?" Complain the Greeks, "Why should we sweat like Germans and live lives of austerity like the Germans? After all, you only live once, so why not enjoy your short life on the good earth." The new French-German plan works on paper, but most of the nations in southern Europe are not ready to live and work like Germans. So the Germans ask, "Why should we bail out these lazy no-gooders? We work while they sit on the beach and drink beer. It's grossly unfair. We don't want to be bankers to all of Europe."

I continue to warn that with all the international "money" printing, inflation lies ahead. This also means higher interest rates. Subscribers must remember the interest rates are abnormally low today, which means that trillions of dollars are being rolled over at almost negative rates. But when rates begin to advance, the compounding effect comes into play. This will present problems beyond anything ever seen by Americans and a massive slowdown in business. The slowdown will be addressed by the central banks by printing, printing and more printing!

The following is from the early December issue of the authoritative Bank Credit Analyst -- "Thus far, the US economy has remained resilient despite the turmoil overseas. However, European banks are major players in the US, and if the euro crisis remains unchecked, the maelstrom will eventually engulf the US economy. In addition, the failure of the Super Committee to reach an agreement increases the odds of more front-loaded fiscal cuts over the next two years, which will further weigh down growth."

The ease with which the Dow cut thru the 12,000 level and back into the 11,000 was I thought ominous. Instructions: Be out of ALL stocks including mining stocks if you've not done so already. As I see it, the bear market is now continuing from where it left off in 2009. I expect the Fed to start printing again within the next few months. I see major danger ahead and a further collapse in housing prices.

Richard Russell
began publishing Dow Theory Letters in 1958, and he has
been writing the Letters ever since (never once having skipped
a Letter). Dow Theory Letters is the oldest service continuously
written by one person in the business.